Introduction

On 18 December 2018, the FCA announced the next package of measures forming part of its high-cost credit review. It has announced proposals to change how banks charge for overdrafts. It has also made new rules strengthening the protections for consumers using home-collected credit (doorstep lending), catalogue credit and store cards and it is consulting on further measures on buy now pay later offers.

Finally, as part of its work to help consumers get essential household goods and less expensive forms of credit, the FCA has published finalised guidance for registered social landlords.

Consultation Paper 18/42: High-Cost Credit Review: Overdrafts consultation paper and policy statement

 In Consultation Paper 18/42: High-Cost Credit Review: Overdrafts consultation paper and policy statement (CP18/42) the FCA is consulting on proposals to simplify the pricing of all overdrafts and end higher prices for unarranged overdrafts by:

• stopping firms from charging higher prices when customers use an unarranged overdraft, because the difference in costs for providing unarranged and arranged overdrafts does not fully account for the difference in pricing;
• banning fixed fees for borrowing through an overdraft (other than fees for refusing a payment due to lack of funds (refused payment fees), which firms are entitled to charge for under the Payment Services Regulations 2017;
• ensuring the price for each overdraft will be a simple, single interest rate – no fixed daily or monthly charges;
• requiring firms to advertise arranged overdraft prices in a standard way, including an Annual Percentage Rate to help customers compare them against other products;
• issuing new guidance to reiterate that refused payment fees should reasonably correspond to the costs of refusing payments, and explain the costs that may be included; and
• telling banks to do more to identify overdraft customers who are showing signs of financial strain or are in financial difficulty, and to help them to reduce their overdraft use.

The FCA expects its proposals to significantly lower charges for overdrafts for those currently paying the highest prices.

The FCA is not currently proposing a price cap which it feels could prompt providers with low, or no, charges to raise prices. The FCA also feels that a price cap could discourage consumers from trying to understand their overdrafts and prevent more effective competition developing.

The deadline for responding to the proposals in CP18/42 is 18 March 2019.

The FCA also sets out in chapter 7 of CP18/42 its policy statement for the competition remedy rules it has made to address low awareness and engagement in this market. The regulator consulted on these draft rules in Consultation Paper 18/13: High-cost credit review: overdrafts (our blog is here). The new rules require:

• firms to provide tools, online or within their banking apps, that assess eligibility for overdrafts to reduce barriers for consumers who are considering switching and searching for a personal current account (PCA) with an overdraft;
• improvements to visibility and content of key general information about overdrafts – in particular, when opening a PCA. This will include an online calculator so customers can check the costs of overdrafts in pounds and pence for different patterns of use;
• firms to send consumers text messages or push notification alerts to address unexpected overdraft use; and
• a ban on the inclusion of overdrafts in available funds, and other similar expressions, so that consumers using an overdraft will see a negative balance and better understand that their overdraft is debt.

In chapter 8 of CP18/42 the FCA consults on proposals to amend the competition remedy rules set out in chapter 7. The changes would be required as a result of the proposals in chapter 4.

The rules in chapter 7 come into force on 18 December 2019. However, the FCA is consulting in chapter 8 on proposals to bring this forward to early December 2019. This is to align with the implementation of the proposals being consulted on.

Consultation Paper 18/43: High-cost credit review

In Consultation Paper 18/43: High-cost credit review – feedback on CP18/12 with final rules and guidance and consultation on buy now pay later offers (CP18/43) the FCA provides feedback and final rules to Consultation Paper 18/12: consultation on rent-to-own, home-collected credit, catalogue credit and store cards and alternatives to high-cost credit, discussion on rent-to-own pricing (our blog is here).

On page 3 of CP18/43 the FCA provides a table setting out which chapters are particularly relevant for each sector.

In CP18/43 the FCA publishes final rules and guidance on home-collected, catalogue credit and store cards and finalised guidance for registered social landlords. It also consults on a package of remedies for buy now pay later offers:

• extending two measures, that already apply to catalogue credit and store cards, to point of sale retail finance providers; and
• two new measures that would apply to catalogue credit, store cards and point of sale retail finance providers.

A summary of the changes that the FCA is making to its rules can be found on pages 7 to 9. The final rules and guidance can be found in Appendix 2 of CP18/43. In paragraph 1.36 (page 11) the FCA sets out when the new rules and guidance come into effect.

Finalised Guidance 18/6: Helping tenants find alternatives to high-cost credit and what this means for social housing landlords

The FCA has published Finalised Guidance 18/6: Helping tenants find alternatives to high-cost credit and what this means for social housing landlords (FG18/6). FG18/6 is intended to assist social housing landlords, including local authorities and housing associations, to understand the scope and application of consumer credit regulation when they help tenants to find alternatives to high-cost credit. These alternatives could be loans from credit unions or Community Development Finance Institutions, for example. They might also be non-credit alternatives such as furniture re-use schemes or community organisations that help people to acquire household appliances.